Asset Finance Solutions in Canada : Asset Based Lending Rates Explained
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Asset finance solutions are becoming one of the most popular solutions to business financing in Canada. Let's look at asset based lending rates in Canada and the types of solutions that might be available for your firm.
Let's dig in.
Asset finance can mean different things to different business folks. Asset based lines of credit are really the essence of our topic and discussion. Simply speaking it's the financing that your firm secures, on a revolving of operating basis, and it's collateralized by receivables and inventory.
But wait, we should also add that in many cases your firm's equipment and unencumbered fixed assets are also eligible for operating financing. Most business owners realize that Canadian chartered banks generally do not allow you to monetize or borrow daily against equipment and fixed assets such as real estate. Asset finance, i.e. our asset based line of credit does just that? That is the 'ABL' difference.
Why asset based lending is becoming so popular?
It is an alternative
It is more liquid
It has fewer rules
That's what an asset based line of credit is all about. We tell our clients we haven't seen one case where a customer's asset based line of credit didn't improve significantly from a viewpoint of borrowing power, with fewer rules.
What are those 'rules' we are referring to? Let's put it this way, you couldn't measure our respect for the Canadian banking system in Canada - it's immense. But the reality is that typically small and medium-sized businesses in Canada - (let's define that as say anything from between 1-30 Million in revenue) are challenged when it comes to operating lines of credit.
How do asset finance solutions remove the liquidity challenge your firm faces? They monetize assets, allowing you to borrow against them on a daily basis. Very little if any emphasis is placed on balance sheet ratios, profitability (it helps and is nice to be profitable though!) personal guarantees, or outside collateral.
Are asset based lending rates different from bank credit facilities? In some cases they actually are the same or better from a viewpoint of a pure rate discussion, where they differ is that if your firm's facility size is under the 3 Million dollar range from a viewpoint of A/R and inventory balances. At this point, you can expect to pay a significant premium compared to a bank line of credit.
Is the 'premium' on asset based lending rates worth it to your firm? It absolutely isn't worth it, IF... and that’s a big IF... you don't place value on increased borrowing power, the ability to borrow against your assets as you grow, as well as the increased flexibility around the terms and conditions of your facility.
That's a big IF..! And we think clients get our point when we say that any premium you might pay is easily justified.
Are asset based lines of credit becoming more popular in Canada - absolutely! Will they cost you more - probably, but not always - depending on the overall size and quality of the facility you require.
Are the advantages of increased liquidity important for you - that's for you to decide! Speak to a trusted, credible and experienced Canadian business financing advisor to learn more about asset finance solutions in Canada.
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Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil